Dropshipping is an order fulfillment option that allows ecommerce businesses to outsource the processes of procuring, storing, and shipping products to a third party—typically a supplier.
This fulfillment model commonly appeals to entrepreneurs seeking efficiency and low overhead, but it can come at a cost—especially when it comes to customer experience
What is dropshipping?
Dropshipping is a retail method where an online store doesn’t keep its products in stock. Instead, when a customer makes an order, the store forwards it with payment to a dropshipping supplier. The supplier then ships the product to the customer.
Many business owners prefer dropshipping because it passes the task of order fulfillment to suppliers. This means stores don’t need to invest in warehouse space or risk getting stuck with unsold inventory. As a result, businesses can allocate more resources to other retail activities such as marketing.
What are dropshipping suppliers?
Dropshipping suppliers fulfill orders made by retailers on behalf of customers. They store products, package them for shipping, and organize delivery to the customer address.
You might work with an individual supplier or a platform that hosts a directory of suppliers, such as AliExpress. Some manufacturers, wholesalers, and independent makers also operate as dropshipping suppliers.
What is a dropshipper?
A dropshipper is the person or business that accepts customer orders and passes them to a supplier for fulfillment.
Dropshippers often run online stores to market and sell products. When a customer buys a product, the dropshipper places a corresponding order with the supplier.
Let’s say a customer buys a cat collar from your online pet store. As a dropshipper, you forward the order to your cat collar supplier, who keeps the product in stock.
Key players in the dropshipping model
Seller of record
Wholesalers
In a typical product supply chain, wholesalers buy from manufacturers and sell to retailers at a slight markup. They function as middlemen; generally, they do not sell to the end consumers but may provide dropshipping services to retailers.
FAQs
Potential limitations for dropshipping?
- Competition: Given the low cost and investment to get started, dropshipping is a highly competitive field.
- Product quality: Dropshipping reduces your involvement in the order fulfillment process, curtailing your ability to monitor and guarantee product quality.
- Branding: Because the products you sell may not be unique or distinguishable from similar offerings by other sellers, you could have trouble differentiating your offering.
- Profit margins: Little to no product differentiators means your business may end up competing more aggressively on price. Selling at low prices can eat up your profit margin.
- Fulfillment timeline: When a dropshipping service handles the fulfillment process, you do not have control over order selection, packaging, and shipment.
- Inventory management: Up-to-the-minute updates on what is available in stock may not be possible. If a customer places an order only to find the product is out of stock, this poor experience can discourage future orders and damage your brand.
- Range of offers: Because you don’t handle order fulfillment, you may be limited in the special offers and promotions you can run, such as bundling or free shipping.
- Supplier errors: Low-quality dropshippers may make mistakes when fulfilling customer orders. This could lead to botched orders, low-end packing, and missing items.
- Complex customer service: With dropshipping, you’re still responsible for your reputation and keeping customers happy. If things go wrong with the fulfillment process, managing customer support might be up to you.
How does dropshipping work?
- Seller signs agreement with dropshipper.
- Customer orders online.
- Seller receives order.
- Customer receives an order confirmation.
- Seller forwards the order to dropshipper.
- Dropshipper ships the order.
- Customer receives their product